ULI Member Outlook for Residential Communities and Neighborhoods

Experts in housing discuss prospects for this year, the preferences of millennial buyers, the importance of providing communities with a strong sense of place, strategies for making homes more affordable, and other trends.

What factors will likely have the greatest impact on the housing market this year?

Robert Bowman: First, jobs and the economy. If the economy continues to grow, that’s going to have a huge impact on the housing market. Second, any substantial rise in interest rates without a corresponding lift in the economy would slow the housing market. Third, for a number of years, the mortgage process has been burdened by new regulations, and simplifying those would increase sales.

Beth Bradburn: One of the biggest challenges continues to be a labor-constrained market. The demand is there—it is not over the top, but it’s steady—and in order to meet it, we’ve got to ensure that we have a quality labor pool.

Brian Bullock: There are a lot of strong economic indicators right now, and a lot of confidence and optimism on the part of consumers. I see that driving a pretty strong sales environment over the next year.

Joel Shine: The biggest factor in the housing market is always consumer confidence. Some people think it’s interest rates, but I started selling homes in the early 1980s, when interest rates were five times what they are now, and you could still sell homes to people who had confidence in their jobs and careers. It depends on how the new White House policies are perceived, how the general economic recovery is perceived. The supply of housing has been somewhat restricted and will continue to be restricted because of labor shortages and the resulting increases in construction costs. Also, if interest rates climb too fast, that will be a big problem. If they grow in a managed way, I think it’ll be fine.

R. Bird Anderson Jr.: Another factor that may be a bit more unique to this year would be regulatory entitlement burdens and costs—will they continue to increase, or will we see enough of a pushback from communities and the industry to begin tapering off some of them? The housing industry is aiming a lot of energy at finding a way to make those a bit less burdensome and costly. The other question is: Will 2017 prove to be a year of continued growth in the entry-level buyer segment, or will higher interest rates serve as a ceiling?

Thomas Woliver: As a master-plan developer in Texas, we are most concerned with affordability. Texas has always been known as a more affordable market, but labor shortages have driven up construction costs. With the change in the White House, we don’t know how immigration policy will impact construction and labor in our markets. We’re also closely watching interest rates. Rates are likely going to rise, but will they reach a point where they will slow housing growth, despite the robust market here?

What have you learned recently about the housing preferences of millennials that has surprised you?

Woliver: Historically, in our master-planned communities, most buyers have been families concerned with access to good schools. Now, in our most recent communities, we may have 25 percent millennials and 25 percent empty nesters. What is surprising is that a lot of these millennials are moving from relatively new apartments that are very nice and have top-notch finishes and amenities, so we expected them to demand these same things in their homes. But instead, they are more focused on the amenities of the community than what’s inside the home. They do have an expectation for high-speed internet, connectivity, and home automation, however.

Bowman: Millennials are basing their decisions about where to live on who they will live with. They are much more interested in being connected to their neighborhood, their neighbors, and their community than other generations have been. We are moving quickly to make sure we can provide that.

Bullock: Millennials are in tune with style. They are looking for granite countertops and earthy materials. They want a nice house with nice finishes. But you don’t see them maxing out what their income allows them to buy. They’re staying within their budgets. They want their home to be unique and interesting on the inside, and they want the neighborhoods they live in to have different styles of housing.

Bradburn: There’s less interest in a cookie-cutter type of neighborhood compared to the last time the housing market took off, when people were willing to sacrifice style for affordability.

Anderson: I have learned over the past two or three years that the millennial segment is far too big a demographic to try to categorize in one simple statement. It’s more diverse and has greater extremes of exceptionally well educated and relatively poorly educated people than previous generations in recent history. It is folly to address that segment as a single segment.

Shine: Making any generalization about tens of millions of people with a 20-year age span between them is a fool’s errand. Millennials are a very diverse group. The one thing you can say about millennials is that, in general, they have gotten married and are having families later than my generation did. That has put off some of the buying decisions several years. But all of the discussion in the press about how the millennials are going to want to move into downtowns, live in high-rises—there are a bunch of places where that’s true, but not very many. When you have the second kid and the dog, you’re going to move to the suburbs.

How can developers and homebuilders distinguish their properties and provide residents with a strong sense of place?

Shine: We’re very focused on multigenerational living, building homes with flexible spaces that allow buyers to decide how they want to live. A bonus room can serve as a second recreation room or an extra bedroom for kids or cousins or aunts and uncles.

Bowman: We work with municipalities to create places that let homeowners walk to small, locally owned shops in our neighborhoods. People want to get fresh air and exercise outdoors, and they want the opportunity to connect with other people. We recruit, support, and grow small businesses in our neighborhoods. Getting the mix of tenants right is also a big part of it. We know exactly the types of businesses we’re looking to put next to each other so that they succeed together.

Anderson: Developers and homebuilders should focus on creating a sense of community. If that’s the starting point, as opposed to trying to create as many houses as possible on a given plot of land, then I think people are on the path to success. The best way to do that is to incorporate the inherent advantages of any particular site—that may be providing nearby retail services, or creating pocket parks that connect through undeveloped trails, or offering activity centers with smart social planners.

Bullock: Central parks in the community, gathering spaces, clubs for people coming together with similar interests. Creating the social aspect is as important as putting in the infrastructure for these kinds of activities.

Bradburn: That could mean biking clubs, walking clubs, dog clubs.

Woliver: Traditionally, master-plan developers have had a checklist approach to amenities: provide a nice community center with a pool, trails, and a nice entry feature. Now, we are all putting more focus on human infrastructure, bringing in lifestyle directors or other personnel to bring people together, facilitate events, or offer health and fitness classes. In the past, developers would build beautiful facilities, hand the keys over to a property manager, and hope that the community interacts. Now, we provide the human infrastructure to encourage residents to meet, gather, and find common interests.

What are some of the best strategies for keeping the cost of housing down?

Bullock: Developers are not putting in expensive common-area infrastructure as early in the life of the community as they used to.

Bradburn: For a 3,000- to 5,000-unit community, the clubhouse might not go up until a couple of years in. You need to have enough homes on the ground and enough people paying into the homeowners association that the developer is not funding the deficit, because that just translates into higher lot prices upfront. However, developers are putting in hiking trails and open space and other amenities right away to encourage people to participate in the community.

Woliver: One way to address cost is to increase density. We are looking at ways to build more density, which is not common in Texas. If you have a small footprint, that brings housing prices down. On some of our projects, we’ve introduced revenue participation to keep our land prices down so our builders can compete in the market. And then if they reach a certain threshold of profit, they return some of that profit back to the developer. It’s a win/win for everybody.

Bowman: Designing neighborhoods and homes is both a right-brained and a left-brained exercise. We focus on bringing together people on our team with different perspectives and responsibilities, with both design and production capabilities, so we end up with homes and neighborhoods that offer more character at less cost. This kind of collaboration drives new floor plan ideas, new planning ideas, and creative problem solving around mechanical systems.

Anderson: I don’t have data to back it up, but I believe that more builders and developers are spending more time with political advocacy, building rapport with neighborhoods and communities in order to help explain the impact of impact fees and taxes and ordinances, because I think many well-intended social and political policies centered around affordable housing or environmental- or traffic- or school-related concerns often have the unintended consequence of increasing housing costs enormously.

Shine: There’s a lot of discussion now about bringing down the total cost of housing, which includes not just principal, interest, taxes, and insurance, but also all utility bills. So that means putting in things like solar panels and better insulation. The industry is migrating toward net-zero homes. Keeping the costs of the house down also means not having any wasted space. Part of the artistry of the architecture is to make a 1,500-square-foot [140 sq m] house live like an 1,800-square-foot [170 sq m] house.

What other significant trends or innovations are you seeing?

Anderson: Builders are spending more time than ever before with focus groups and surveys and market research to determine what people want in their homes, and they’re finding ways to deliver those things creatively.

Bowman: I am very excited about the opportunities to create multigenerational neighborhoods, to group people by attitude and outlook more than by age. Putting people two and three generations apart on the same street, in the same neighborhood, allows people to connect in a way that we have never really been able to provide before. Different people at different life stages are looking for different types of homes, so we integrate lots of different housing types on the same block, as opposed to building attached products in one part of the neighborhood and single-family homes in the other.

Bullock: There is a trend toward what we call “casual elegant.” That might mean nice, big kitchen cabinets, granite or natural quartz countertops, and high-quality flooring, but the homes themselves are very open and the furnishings are casual. It combines high style with practical indoor/outdoor spaces. It’s a good footprint to entertain in.

Shine: Within ten years, everybody will run their houses off an iPad or a smartphone. Sensors will heat up rooms only when you’re in them. Refrigerators will tell you when you’re out of milk. The technology exists now; it’s just the function of getting all of the pieces talking to each other and making sure they’re debugged and secure from hackers.

Woliver: In some of our projects, we have rolled out home automation community-wide. Quite a number of people also work from home—perhaps one or two days a week—so we look for ways to accommodate them with our houses. Multigenerational housing is evolving, too. It’s not just for the older generation moving back with their kids; it’s also for the boomerang kids who come back from college to live with their parents. Homes with two master bedrooms, so two families or two roommates can live together, is another trend that we haven’t even scratched the surface of yet.

Ron Nyren is a freelance architecture and urban planning writer based in the San Francisco Bay area.

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